Should ESG Standards be Set by Regulators or by Industry Self-Regulation
With almost $3trillion in assets globally, ‘ESG’ labeled investments seem to be the new ‘black’, and investment firms seem to be now slapping that label on almost any investment strategy, hoping to jump on the wagon and rake in some investor funds.
Recent regulatory compliance reviews have however unearthed some ‘questionable claims’ with increasing concerns about the lack of formal standards to guide behavior in this area. The United States Securities and Exchange Commission (US SEC) has recently begun clamping down on some of these ‘greenwashing’ practices.
Some of the proposals put forward by Gary Gensler, US SEC Chair, include coming up with
consistent and comparable disclosures about asset managers ESG strategies so investors can understand what data underlies funds claims and choose the right investments for them
A proposed change here is to push funds to have at least 80% of assets aligned with ESG investmentsbefore they can be labeled as such.
But critics are arguing that such a move is tantamount to the SEC directing where assets should be allocated or venturing into the rating of investments, which in summary ‘is not their job’.
So the jury is still out on the best approach here, I say! What are your thoughts?
Do you think regulators venturing into providing industry standards in this area is tantamount to ‘overreach’ or do you believe it is their job to do so?
Do you think by setting Standards here, regulators are determining where assets should be invested?
What do you think is the best approach to standardizing behavior here? Industry-led or regulatory-driven?